HONG KONG/SINGAPORE/NEW YORK, Nov 10 (Reuters) – FTX Chief Executive Sam Bankman-Fried on Thursday made an emergency move to raise funds to bail out his firm as the cryptocurrency exchange seeks to plug an $8 billion hole in its funding. send tweets and notifications to employees.
Bankman-Fried said he is in talks with “a number of players” in the crypto sector, including Justin Sun, the founder of cryptocurrency token Tron.
Bigger rival Binance distanced itself from bailing out FTX on Wednesday, sending the cryptocurrency lower as hopes of a bailout faded. That left Bankman-Fried, 30, who had previously thrown lifelines to other faltering digital asset platforms, with dwindling options.
Sun, the founder of the Tron cryptocurrency network, said in a tweet on Thursday that “we offer a solution together with #FTX to start a way forward,” without giving further details. Sun did not respond to a request for comment.
The FTX spokesman refused to give further details about the negotiations.
In a memo seen by Reuters, Bankman-Fried said next week it would “take an upswing” by clients and “potential new investors” to do the right thing.
Bankman-Fried, who also closed cryptocurrency trading firm Alameda Research, promised that every penny would go “to the users” “until we give them their due.”
Bankman-Fried, who is from California but lives in the Bahamas, where FTX is based, told employees on Wednesday that he was exploring all options for his firm after the collapse of the deal with Binance.
Bloomberg reported that Bankman-Fried told investors that FTX was facing a deficit of up to $8 billion and that the company would have to file for bankruptcy if it did not receive additional funding.
Meanwhile, a message on the FTX website said it was no longer accepting withdrawals or new users. The FTX shortage comes after users rushed to withdraw $6 billion worth of cryptocurrency tokens from FTX in just 72 hours.
The focus among investors is on the unknown size of customer losses and the impact of the latest and perhaps biggest collapse in an industry that has become a minefield for investors.
Crypto asset manager Coinshares said it has a total exposure to FTX of $30.3 million.
FTX’s native token, FTT, has fallen 90% this week and was trying to hold steady around $2.90 – not far from record lows around $1.50. Bitcoin fell below $16,000 overnight for the first time since late 2020 and was trading at $16,310 at 1210 GMT, showing slight signs of recovery.
According to interviews with several people close to Bankman-Fried and communications from both FTX and Binance, the seeds of FTX’s downfall were sown months ago in mistakes made by Bankman-Fried after he stepped in to rescue other crypto firms.
Another exchange, OKX, said it received a filing earlier in the week from Bankman-Fried outlining $7 billion in liabilities that must be paid quickly.
“Even Elon Musk wouldn’t be able to commit $7 billion within hours of negotiations. It was too much for us,” OKX director of financial markets Lennix Lai told Reuters.
“(It’s) a big hole for traffic,” he said. “As long as the outlook for FTX’s fate remains uncertain, the dagger will continue to hang in the cryptocurrency market.”
“crisis of confidence”
Investors were watching for any signs of contagion spreading outside the crypto sector. Fadi Massih, vice president of Moody’s Investors Service, said the losses “mainly remained in the crypto sphere.”
“However, if leverage is re-established in the crypto-financial system, this could disturb the banking system, even if banks continue to move away from direct interaction with the crypto-economy,” Massih said in emailed comments.
“One top exchange failed – that’s on a different level,” said Danny Chong, CEO of decentralized finance firm Tranchess, with broader implications from the failures of stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.
“People’s funds, including market makers, are still in FTX,” he said. “Just when people thought that the crypto winter probably couldn’t last … along comes an episode like this.”
The US securities regulator is investigating FTX.com’s handling of customer funds and crypto-lending activities.
Bloomberg reported that the US Department of Justice is also looking into the mix-up. A DOJ spokesman declined to comment.
Investors withdraw funds already invested in FTX. Venture capital fund Sequoia Capital zeroed in on $150 million on Wednesday. Canada’s Ontario Teachers Pension Plan, Tiger Global and Japan’s Softbank are also FTX investors.
Broker Robinhood ( HOOD.O ) said it had no direct exposure to FTX, but Bankman-Fried has a stake in the firm, and its shares fell sharply on Tuesday and Wednesday.
Most cryptocurrency players are bullish in the long term, but set to go lower in the near term. Bitcoin’s 20% loss this week is comparable to June’s decline when Three Arrows Capital was stressed.
“What makes this new phase problematic is that the number of businesses with stronger balance sheets that can bail out those with low capital and high leverage is diminishing,” JP Morgan analysts said in a note to clients.
“Now that Alameda Research and FTX’s balance sheet strength is in question just a few months after being perceived as strong balance sheet entities, it creates a crisis of confidence.”
Reporting by Angus Berwick in New York; Georgina Lee in Hong Kong and Tom Westbrook in Singapore; Elizabeth Howcroft in London; Editing by Megan Davies; Sri Navaratnam and Catherine Evans and Anna Driver
Our standards: Thomson Reuters Trust Principles.